Bancor is a decentralized liquidity protocol that enables automated token trading on Ethereum and other networks. The Bancor Network is powered by the BNT utility token, which facilitates key functions to create built-in liquidity directly in smart contracts. In this comprehensive article, we’ll take an in-depth look at the origins and workings of the Bancor protocol and its BNT coin.
Overview of Bancor
The Bancor protocol was envisioned to solve the problem of illiquidity in the crypto markets, particularly for long-tail tokens. Bancor uses an algorithmic market maker model known as an Automated Liquidity Protocol (ALP) rather than order books to facilitate trading.
Users can easily buy and sell tokens directly from smart contracts without needing to match buyers and sellers. Coins added to the Bancor Network connect to smart contract liquidity pools that hold reserves of the target coin and BNT. This shared pool of BNT provides continuous liquidity between assets.
The open-source Bancor protocol is blockchain agnostic and has been implemented on Ethereum, EOS, LiquidApps and more. The project was founded in 2017 and BNT was one of the largest ICOs that year, raising $153 million.
How BNT Provides Liquidity
The BNT token is the linchpin that powers the automated liquidity model through the following mechanisms:
- BNT is used as the connector token between all assets in pools, enabling trading pairs.
- BNT reserves absorb buy and sell orders, providing always-available liquidity.
- BNT facilitates price discovery and automatic rebalancing of pools as balances shift.
- BNT allows disintermediation, letting pools operate wholly on the blockchain without centralized overseers.
By sharing its flexible liquidity, BNT unlocks automated conversions between tokenized assets in the Bancor Network.
Key Features and Functionality
Some key features of the Bancor protocol include:
- Bancor Wallet – User-friendly web wallet for purchasing, storing, and converting tokens.
- Token Relays – Smart contracts that connect tokens to the network and pool liquidity.
- Decentralized Apps – Frontend dApps build on the protocol for liquidity access.
- Impermanent Loss Protection – Unique pooling model to protect against volatility risk.
- Governance and Voting – BNT holders can shape protocol changes through staking and voting.
Together with BNT, these features create an advanced platform for on-chain liquidity.
BNT Use Cases
BNT serves multiple use cases that drive demand and trading volume, including:
- Onboarding long-tail tokens on exchanges and wallets.
- Hedging value across different crypto assets.
- Funding emerging projects through decentralized crowdfunding.
- Payment processing and remittances.
- Liquidity for derivatives, prediction markets, lending, etc.
- Backend liquidity infrastructure for exchanges, apps, and ecosystems.
This wide range of utility across the DeFi landscape underpins BNT value.
BNT Tokenomics and Supply
The BNT token has a fixed lifetime supply of 10,099,987 tokens, all of which were created upon launch. No additional BNT will be minted. The circulating supply started at 79% and gradually increased through vesting schedules.
BNT employs a deflationary token burning model. As usage grows, more fees are generated and subsequent BNT burns decrease the total supply. This dynamic influences BNT’s valuation over time.
In closing, Bancor represents an ambitious vision for building automated liquidity directly into token contracts through innovative mechanics like BNT and token relayers. As crypto markets mature, solutions that make trading more efficient hold disruptive potential.
While still proving itself on the mainnet, Bancor offers a glimpse into the future landscape of decentralized finance, where smart contract-based liquidity could disrupt traditional order book models. Backed by sound tokenomics and real-world usage, BNT seems positioned at the forefront of this paradigm shift as blockchain-based liquidity goes mainstream.